SAN FRANCISCO (CN) – A Tesla investor sued the company and CEO Elon Musk in federal court on Friday, alleging that Musk’s representation that the company had the necessary funding to take the company private was fraudulent.
Kalman Isaacs said that Musk’s Aug. 7 tweet wherein he discussed taking Tesla private was part of a broad scheme to manipulate the electric car company’s stock price, hurting short sellers and Tesla investors.
“Defendants embarked on a scheme and course of conduct to artificially manipulate the price of Tesla stock to completely decimate the company’s short-sellers (and, on the way, injured all purchasers of Tesla securities),” Isaacs said in the complaint.
The potential class of plaintiffs not only includes short-sellers, but investors who bought the stock as it surged in the immediate aftermath of its price increase only to see the stock price later fall after it became clear the plan to take the company private was a little less concrete than initially advertised.
Musk later explained the rationale behind taking the company private, in that it gives employees, most of whom are shareholders, reprieve from the volatility of the stock that tends to oscillate on a fairly regular basis.
“A final decision has not yet been made, but the reason for doing this is all about creating the environment for Tesla to operate best,” Musk wrote after announcing the possibility of going private in the morning. “As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders.”
But Isaacs said that Musk’s initial tweet about going private advertised the fact that he already had the funding secured.
Neither the letter Musk wrote explaining the possibility of going private, nor subsequent tweets regarding the subject clarified the initial claim that sufficient funding to go private was already secured, Isaacs said.
“By not correcting Defendant Musk’s misrepresentations, Tesla doubled-down on Musk’s earlier false and misleading funding statements, and continued to cause artificial inflation in the price of the company’s stock,” Isaacs says in the complaint. “Additionally, in this statement, defendant Musk expressly admitted that he is targeting short sellers.”
Isaacs said the current station of Tesla as a negative cash flow company renders it nearly impossible for the electric car maker to have the nearly $72 billion required to raise the equity and debt financing.
Other options include lining up financing from equity firms, something Isaacs said looks doubtful under the current circumstances.
“Tesla still has not revealed where it is getting the more than $71 billion it would cost to take the company private,” Isaacs said in the complaint.
Tesla did not immediately respond to an email in search of comment on the lawsuit.
The securities lawsuit was filed by Eric George of Browne George Ross LLP, based in Los Angeles and San Francisco. Keller Lenkner LLP, based in Chicago, is also part of the plaintiff’s legal team.